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Digested by: Jamee S. Singco Subject: Insurance Title: Eagle Star Ins. vs. Chia Yu Topic: Insurance Policy Limitation to Commence Action

Facts: Atkin, Kroll & Co., loaded on the S. S. Roeph Silverlight owned and operated by Leigh Hoegh & Co., A/S, of San Francisco California, 14 bales of assorted underwear valued at P8,085.23 consigned to Chia Yu in the City of Manila. The shipment was insured against all risks by Eagle Star Ins. Co. of San Francisco, California, under a policy issued to the shipper and by the latter assigned to the consignee. When the vessel started discharging its cargo into the custody of the Manila Terminal Co., Inc., which was then operating the arrastre service for the Bureau of Customs the 14 bales consigned to Chia Yu, only 10 were delivered to him as the remaining 3 could not be found. Three of those delivered were also found damaged to the extent of 50 per cent. Chia Yu claimed indemnity for the missing and damaged bales. But the claim was declined, first, by the carrier and afterward by the insurer, whereupon Chia Yu brought the present action against both, including their respective agents in the Philippines. More than two years after delivery of the damaged bales and the date when the missing bales should have been delivered, the action was resisted by the defendants principally on the ground of prescription. The trial court found for plaintiff and rendered judgment in his favor for the sum claimed plus legal interest and costs. The judgment was affirmed by the Court of Appeals. Issue: whether plaintiff's action has prescribed Ruling: On the part of the carrier the defense of prescription is made to rest on the following stipulation of the bill of lading: In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after the delivery of the goods or the date when the goods should have been delivered. The stipulation is but a repetition of a provision contained in section 3 (6) of the United States Carriage of Goods by Sea, Act of 1936, which was adopted and made applicable to the Philippines by Commonwealth Act 65 and by express agreement incorporated by reference in the bill of lading. The case for the insurer stands on a different footing, for its claim of prescription is founded upon the terms of the policy and not upon the bill of lading. Under our law the time limit for bringing a civil action upon a written contract is ten years after the right of action accrues. (Sec. 43, Act 190; Art. 1144, New Civil Code.) But counsel for the insurer claim that this statutory in the policy: No suit action on this Policy, for the recovery of any claim, shall be sustainable in any Court of law or equity unless the insured shall have fully complied with all the terms and conditions of this Policy nor unless commenced with twelve (12) months next after the happening of the loss . . .

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To this the court cannot agree. Examining the policy sued upon in the present case, we find that its prescriptive clause, if given effect in accordance with the terms of the policy, would reduce the period allowed the insured for bringing his action to less than one year. This is so because the said clause makes the prescriptive period begin from the happening of the loss and at the same time provides that the no suit on the policy shall be sustainable in any court unless the insured shall have first fully complied with all the terms and conditions of the policy, among them that which requires that, as so as the loss is determined, written claim therefor be filed with the carrier and that the letter to the carrier and the latter's reply should be attached to the claim papers to be sent to the insurer. It is obvious that compliance with this condition precedent will necessarily consume time and thus shorten the period for bringing suit to less than one year if the period is to begin, as stated in the policy, from "the happening of the loss." Being contrary to the law of the forum, such stipulation cannot be given effect. When did the cause of action accrue? On that question we agree with the court below that plaintiff's cause of action did not accrue until his claim was finally rejected by the insurance company. This is because, before such final rejection, there was no real necessity for bringing suit. As the policy provides that the insured should file his claim, first, with the carrier and then with the insurer, he had a right to wait for his claim to be finally decided before going to court. The law does not encourages unnecessary litigation. In concluding, we may state that contractual limitations contained in insurance policies are regarded with extreme jealousy by courts and will be strictly construed against the insurer and should not be permitted to prevent a recovery when their just and honest application would not produce that result. Wherefore, the judgment appealed from is reversed with respect to the carrier and its agents but affirmed with respect to the insurance company and its agents, with costs against the latter.